Misbehavior and mistake in bankruptcy mortgage claims

Texas Law Review

Volumn 87, Issue 1, 2008, Pages 121-182

  Porter, Katherine ^a  

^a UNIVERSITY OF IOWA COLLEGE OF LAW   (United States)

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EID: 58149144726     PISSN: 00404411     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (288)

1. See Raisa Bahchieva et al., Mortgage Debt, Bankruptcy, and the Sustainability of Homeownership, in CREDIT MARKETS FOR THE POOR 73, 104 (Patrick Bolton & Howard Rosenthal eds., 2005) (explaining that Chapter 13 bankruptcy is frequently used by families facing foreclosure).
2. ELIZABETH WARREN & JAY LAWRENCE WESTBROOK, THE LAW of DEBTORS and CREDITORS 306 (5th ed. 2006).
3. Id. at 143; see FED. R. BANKR. P. 9011 (requiring that all petitions, pleadings, motions, and other papers filed with the court in a bankruptcy action have factual support).
4. See, e.g., In re Matus, 303 B.R. 660, 675 (Bankr. N.D. Ga. 2004) ("The [bankruptcy] statutes are designed to insure complete, truthful and reliable information is put forward at the outset of the proceedings, so that decisions can be made by the parties in interest based on fact rather than fiction." (quoting In re Bratcher, 289 B.R. 205, 218 (Bankr. M.D. Fla. 2003))).
5. See infra text accompanying note 224.
6. See WARREN & WESTBROOK, supra note 2, at 306 (explaining that nearly every state had granted some level of protection from creditors by the end of the nineteenth century).
7. See MARGARET HOWARD, BANKRUPTCY: CASES and MATERIALS 44 (4th ed. 2005) (noting that bankruptcy law attempts to protect the interests of both debtors and creditors).
8. See infra notes 228-29 and accompanying text.
9. In this Article, I refer only to servicers, but lenders who service their own loans may behave similarly to third-party servicers.
10. See, e.g., Press Release, Iowa Attorney Gen., States Settle with Household Finance: Up to $484 Million for Consumers (Oct. 11, 2002), available at http://www.state.ia.us/govemment/ag/latest-news/releases/oct-2002/ Household-Chicago.html (reporting that the multistate settlement with mortgage lender Household Finance Corp., for its misrepresentation and disclosure violations at the loan origination phase, was the largest direct- restitution settlement ever in a state or federal case).
11. Kurt Eggert, Limiting Abuse and Opportunism by Mortgage Servicers, 15 HOUSING POL'Y DEBATE 753, 755 (2004).
12. See Possible Responses to Rising Mortgage Foreclosures: Hearing Before the H. Comm. on Fin. Servs., 110th Cong. app. at 97 (2007) (statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation) ("Prior to the widespread use of securitization, home finance typically involved a bank or savings institution granting a loan to a borrower. The lending institution would make the decision to grant credit, fund the loan, and collect payments.").
13. See STEVEN L. SCHWARCZ et al., SECURITIZATION, STRUCTURED FINANCE, and CAPITAL MARKETS 2 (2004) (providing an introduction to securitization and examining the legal issues relevant to securitized transactions).
14. Id.
15. Id. at 15.
16. See Hearing, supra note 12, app. at 101-02 (statement of Sheila C. Bair, Chairman, Federal Deposit Insurance Corporation) (explaining that a servicer must comply with the relevant securitization documents).
17. See id. app. at 102-06 (describing the conflicts of interest faced by servicers when managing mortgagees).
18. Id. app. at 103. However, lenders do have a customer relationship with borrowers and may want to retain them as repeat customers. SCHWARCZ ET AL., supra note 13, at 15. Some lenders retain the servicing obligations when they sell loans on the secondary market, but the active market for servicing contracts means that very few customers will find that their loans are serviced by the originating lender. See Jack M. Guttentag, A Mortgage Servicing System for Borrowers?, http://www.mtgprofessor. com/A%20-%20Servicing/a-servicing-system-for-borrowers.htm ("The great majority of loans today are serviced by firms that don't own them.").
19. Jack M. Guttentag, Why Is Mortgage Servicing So Bad?, http://www.mtgprofessor. com/A%20-%20Servicing/why-is-servicing-so-bad.htm (last modified Dec. 13, 2004) (explaining that borrowers cannot easily choose a servicer based on the quality of servicing, nor can they fire a servicer for poor servicing).
20. See id. (describing borrowers' inability to select their mortgage servicers).
21. Id.
22. NAT'L CONSUMER LAW CTR., FORECLOSURES 148 (2d ed. 2007).
23. Kurt Eggert, Comment on Michael A. Stegman et al. 's "Preventive Servicing Is Good for Business and Affordable Homeownership Policy": What Prevents Loan Modifications?, 18 HOUSING POL'Y DEBATE 279, 286 (2007).
24. Eggert, supra note 11, at 758.
25. Some information can be gleaned from the securities filings of public companies that service mortgages. Late charges accounted for approximately 11% of revenues for Ocwen's residential-mortgage-servicing division in 2006. See Ocwen Fin. Corp., Annual Report (Form 10-K), at 30 (Mar. 16, 2007); cf. RONALD J. MANN, CHARGING AHEAD 23 (2006) (reporting that credit-card issuers earn 9% of their revenue from penalty fees).
26. See Hearing, supra note 12, at 9 (describing the conflicting interests of the participants in a securitization).
27. Lenders Look for Way to Avoid Bankruptcy Maze, NAT'L MORTGAGE NEWS, Aug. 30, 2004, at 23 [hereinafter Lenders Look], available at http://www.nationalmortgagenews.com/premium/archive/?id= 147519.
28. See Guttentag, supra note 19 (arguing that the normal financial incentives to provide quality service do not exist within the current structure of the loan-servicing industry).
29. Press Release, J.D. Power & Assocs., Customer Service and Attention to Detail Drive Home Mortgage Satisfaction 1 (Nov. 26, 2002) (on file with the Texas Law Review).
30. See Posting of Tara Twomey to Credit Slips, http://www. creditslips.org/creditslips/2007/03/subprime-servic.html (Mar. 19, 2007, 23:32 PDT) ("Financial troubles, staff layoffs and potentially higher servicing costs on defaulting loans have led to concerns that servicing quality may decline.").
31. See, e.g., Carrick Mollenkamp, Faulty Assumptions: In Home-Lending Push, Banks Misjudged Risk, WALL ST. J., Feb. 8, 2007, at Al (discussing mega-bank HSBC's recent efforts to work with troubled borrowers, including hiring more employees to work out payment plans and implementing a top-down overhaul of its entire mortgage-services branch).
32. See id. (describing HSBC's expanded loss-mitigation efforts); Ruth Simon, Digging Out of Delinquency, WALL ST. J., Apr. 11, 2007, at Dl ("The sharp rise in delinquencies in recent months is straining mortgage companies' ability to respond quickly to borrowers, with such solutions as new repayment plans or modifications to loan agreements.").
33. See Simon, supra note 32, at Dl (describing the heightened strains on servicers as the volume of default increases).
34. See Eggert, supra note 23, at 284-92 (documenting barriers that servicers face in loan modifications).
35. See TERESA SULLIVAN et al., THE FRAGILE MIDDLE CLASS: AMERICANS in DEBT 202 (2000) (stating that half of all bankruptcy debtors are homeowners); Bahchieva et al., supra note 1, at 104-05 (explaining that although most debtors prefer Chapter 7, homeowners disproportionately choose Chapter 13 because Chapter 7 does not protect home equity).
36. 11 U.S.C. § 362(a) (2006).
37. See id. § 362(b) (setting out the exceptions to the automatic stay).
38. See Bahchieva et al., supra note 1, at 73, 104 (finding that bankrupt homeowners are about 50% more likely to file Chapter 13 than Chapter 7, and attributing this preference to Chapter 13's special protections for homeowners in default).
39. The median family that files for bankruptcy reports seriously struggling with debts for more than one year before filing bankruptcy. This query was posed to Chapter 7 and Chapter 13 debtors in telephone interviews one year after the respondent filed for bankruptcy. See Robert M. Lawless et al., Did Bankruptcy Reform Fail? An Empirical Study of Consumer Debtors, 82 AM. BANKR. L.J. 349, 381-82, 382 fig. 12 (2008) (reporting data from telephone surveys of families in bankruptcy).
40. See 11 U.S.C. § 1322(b)(2) (2000) (providing that the Chapter 13 bankruptcy plan may "modify the rights of holders of secured claims, other than a claim secured by a security interest in real property that is the debtor's principal residence") (emphasis added); § 1322(b)(5) (providing that "notwithstanding paragraph (2) of this subsection," the bankruptcy plan may "provide for the curing of any default within a reasonable time"); see also Mark S. Scarberry & Scott M. Reddie, Home Mortgage Strip Down in Chapter 13 Bankruptcy: A Contextual Approach to Sections 1322(b)(2) and (b)(5), 20 PEPP. L. REV. 425, 431 (1993) ("Most homeowners in Chapter 13 must, as a practical and ultimately a legal matter, use § 1322(b)(5) to cure their defaulted home mortgages if they wish to keep their homes.").
41. See Official Bankruptcy Form 10 (2007), available at http://www.uscourts.gov/rules/BK-Forms-1207/B-010-1207f.pdf (instructing secured creditors to list the amount of any arrearage as of the time that the case is filed). See generally David Gray Carlson, Proofs of Claim in Bankruptcy: Their Relevance to Secured Creditors, 4 J. BANKR. L. & PRAC. 555 (1995) (describing the reasons why secured creditors file proofs of claim).
42. See 11 U.S.C. § 524(a) (stating that discharge "voids any judgment at any time obtained, to the extent that such judgment is a determination of the personal liability of the debtor") (emphasis added); Johnson v. Home State Bank, 501 U.S. 78, 83 (1991) (noting that discharge extinguishes only the personal liability of the debtor and that a creditor still has the right to foreclose on a mortgage); Marianne B. Culhane & Michaela M. White, Debt After Discharge: An Empirical Study of Reaffirmation, 73 AM. BANKR. L.J. 709, 714 (1999) ("Valid liens on collateral survive the discharge.").
43. See 11 U.S.C. § 544, 547 (2006) (establishing the powers of the trustee and allowing avoidance of a transfer when several conditions are satisfied).
44. See FED. R. BANKR. P. 3002 (providing that, with certain exceptions, an "unsecured creditor or an equity security holder must file a proof of claim or interest for the claim or interest to be allowed"); FED. R. BANKR. P. 3021 (providing that distribution under the plan will be made to creditors whose claims have been allowed and to certain others); see also Warren & WESTBROOK, supra note 2, at 219 ("To receive any distribution, each Chapter 7 or Chapter 13 creditor must submit a proof of claim.").
45. See 11 U.S.C. § 1326(c) ("Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan."); see also Henry E. Hildebrand III, The Sad State of Mortgage Service Providers, AM. BANKR. INST. J., Sept. 2003, at 10, 10 (explaining that trustees are required by the terms of confirmed Chapter 13 plans to make arrearage payments to mortgage companies).
46. See Scott F. Norberg & Nadja Schreiber Compo, Report on an Empirical Study of District Variation, and the Roles of Judges, Trustees and Debtors' Attorneys in Chapter 13 Bankruptcy- Cases, 81 AM. BANKR. L.J. 431,446 (2007) (reporting that in three of the seven bankruptcy districts surveyed in the article, the practice was for Chapter 13 debtors to make mortgage payments through the trustee). Practices for paying mortgage creditors in Chapter 13 cases vary. In some jurisdictions, ongoing mortgages are paid "outside the plan," meaning that the debtor continues to make the ongoing principal and interest payments directly to the mortgage servicer without trustee involvement. See id. (finding three other bankruptcy districts where the practice was for Chapter 13 debtors to make mortgage payments directly to the creditor); see also Timothy D. MORATZKA, Commission-Free: Chapter 13 Debtor as Dispersing Agent, AM. BANKR. INST. J., Oct. 2007, at 14, 14 (presenting cases from jurisdictions where the debtors were allowed to make mortgage payments "outside the plan"). Even in these jurisdictions, the trustee usually collects the debtor's payment of any arrearages on the mortgage loan; in other districts, the trustee collects both the arrearage amounts and the ongoing mortgage payments. See Hildebrand, supra note 45, at 40 ("More and more chapter 13 trustees are being required by the terms of confirmed plans to make not only the arrearage payments to mortgagees, but also the payments to maintain the regular monthly payments."). These practices are yet another example of the well-documented phenomena of "local legal culture" in bankruptcy cases. See generally Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501 (1993) (contrasting the cultures of bankruptcy practices in different locations); Lynn M. LoPucki, Legal Culture, Legal Strategy, and the Law in Lawyers' Heads, 90 NW. U. L. REV. 1498 (1996) (using examples of local bankruptcy practices to explain the nature and evolution of law); Teresa A. Sullivan et al., The Persistence of Local Legal Culture: Twenty Years of Evidence from the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL'Y 801 (1994) (using examples of the differing bankruptcy practices in various locales to stress the importance of "local legal culture").
47. While claims are the most common creditor activity in bankruptcy cases, claims are not filed by every creditor. See 1 KEITH M. LUNDIN, CHAPTER 13 BANKRUPTCY § 67.1 (3d ed. 2000 & Supp. 2004) (stating that numerous creditors fail to file proofs of claim).
48. DIV. of CONSUMER & Bus. EDUC., FED. TRADE COMM'N, MORTGAGE SERVICING: MAKING SURE YOUR PAYMENTS COUNT 3 (2008), available at http://www.ftc.gov/bcp/ edu/pubs/consumer/homes/rea10.pdf.
49. 64 F. Supp. 2d 1156 (M.D. Ala. 1999).
50. Id. at 1159-60.
51. Id.
52. 432 F. Supp. 2d 181 (D. Mass. 2006).
53. Id. at 183-84.
54. Sacha Pfeiffer, Hidden Legal Fees Push Some into Foreclosure, BOSTON GLOBE, Jan. 18, 2007, at D1.
55. Id.
56. See, e.g., S.P. Dinnen, Mortgage Complaints Can Take Extra Effort, DES MOINES REG., May 2, 2004, at ID (detailing scenarios in which consumers had to repeatedly argue with their mortgage servicers over the servicers' accounting mistakes); Adolfo Pesquera, Paper Trail of Problems: Some Fairbanks Clients Report Nightmare Errors, SAN ANTONIO EXPRESS-NEWS, Aug. 9, 2002, at IE (reporting repeated complaints that Fairbanks Capital Corporation does not properly record payments and then holds its customers responsible for the errors).
57. See Posting of Ben Popken to The Consumerist, http://consumerist. com/5047947/12-confessions-of-a-home-mortgage-collector (Sept. 10, 2008, 12:36 EDT) (reporting that mortgageservicing employees frequently hang up or transfer homeowners back into queue in order to avoid work); Posting of Katie Porter to Credit Slips, http://www.creditslips.org/creditslips/2008/07/thereally-sad.html (July 15, 2008, 10:01 PDT) (providing a transcript of a debtor's call to his mortgage servicer in which he was transferred and put on hold and was unable to learn the reason for a charge).
58. See Popken, supra note 57 ("The Loss Mitigation department has NO CLUE what they are doing."); see also Policing Lenders and Protecting Homeowners: Is Misconduct in Bankruptcy Fueling the Foreclosure Crisis? Hearing Before the Subcomm. on Admin. Oversight and the Courts of the S. Comm. on the Judiciary, 110th Cong. (2008) (statement of Robin Atchley), available at http://judiciary.senate.gov/hearings/testimony.cfrn?id= 3327&wit-id=7158 (testifying that while her account was in bankruptcy, no person with Countrywide could ever give her clear information on what they claimed was owed or why that amount was owed).
59. See Anthony Pennington-Cross & Giang Ho, Loan Servicer Heterogeneity and the Termination of Subprime Mortgages 19, 19-20 (Fed. Reserve Bank of St. Louis, Working Paper No. 2006-024A, 2006), available at http://research.stlouisfed.org/wp/2006/2006-024.pdf (finding "strong evidence" that the identity of the individual mortgage servicer substantially affected the chance of default among a large sample of subprime mortgages).
60. See Yingjin Hila Gan & Christopher Mayer, Agency Conflicts, Asset Substitution, and Securitization 19-20 (Nat'l Bureau of Econ. Research, Working Paper No. 12,359, 2006), available at http://www.nber.org/papers/w12359 (finding that mortgage servicers often delay foreclosure proceedings so that they can avoid the costs associated with foreclosure and collect additional fees while the loan spends time in special servicing).
61. See Michael A. Stegman et al., Preventive Servicing Is Good for Business and Affordable Homeownership Policy, 18 HOUSING POL'Y DEBATE 243, 246 (2007) (presenting data that show that effective preventive-servicing strategies increase dollars collected, reduce overall operating costs, and slow the rate at which mortgages progress into delinquency).
62. See Eggert, supra note 23, at 282 (recounting a 2007 statement from a federal regulatory authority encouraging mortgage servicers to use loan modification and other loss-mitigation techniques to keep borrowers in their homes).
63. See id. at 284 ("Effective loan modifications, which can result from preventive servicing, can both reduce borrowers' payments, helping to keep them in their homes, and save investors from credit losses that result from foreclosure.").
64. *l-2 (Bankr. D.S.C. Nov. 19, 2001) (awarding punitive damages to the debtor after the debtor incurred substantial attorneys fees, other costs, and lost wages responding to inaccurate court documents filed by the creditor due to errors in its records).
65. NAT'L CONSUMER LAW CTR., supra note 22, at 147 n.1 (citing recently published authorities describing the growing problem of mortgage-servicing abuse).
66. See id. at 179 (explaining that, in addition to federal claims brought under the Real Estate Settlement Procedures Act, 15 U.S.C. §§ 2601-2617 (2006), consumers often may bring claims under state unfair-and-deceptive-trade-practices acts and common law breach-of-contract, breachof-fiduciary duty, and tort claims).
67. See generally Gretchen Morgenson, Dubious Fees Hit Borrowers in Foreclosure, N.Y. TIMES, NOV. 6, 2007, at A1 (chronicling several ongoing lawsuits alleging serious misconduct by mortgage-servicing providers).
68. See Eggert, supra note 11, at 768 (arguing that most borrowers are unable to enforce their legal rights because they rarely read their mortgage-loan contracts and usually cannot afford to retain an attorney to pursue litigation under consumer-protection statutes).
69. See, e.g., NAT'L CONSUMER LAW CTR., supra note 22, at 201-03 (documenting conflicting decisions in the federal courts regarding mortgage servicers' claims that the requirements of the Fair Debt Collection Practices Act (FDCPA) and Real Estate Settlement Procedures Act (RESPA) are preempted by the Bankruptcy Code).
70. See Eggert, supra note 11, at 774-75 (expressing concern that legislation passed by several states to curb servicer abuses may be subject to federal preemption).
71. See Marc Galanter, Reading the Landscape of Disputes: What We Know and Don't Know (and Think We Know) About Our Allegedly Contentious and Litigious Society, 31 UCLA L. REV. 4, 14 (1983) ("Even where injuries are perceived, a common response is resignation, that is, 'lumping it.'").
72. See JOHN A. SPANOGLE ET AL., CONSUMER LAW: CASES AND MATERIALS 772 (3d ed. 2007) (discussing the barriers to consumer litigation).
73. See Lenders Look, supra note 27 (quoting an employee of a servicer remarking that "[b]ankruptcy is becoming fertile ground for a lot of loopholes and a lot of lawsuits and a lot of costs to servicers").
74. See TERESA SULLIVAN ET AL., AS WE FORGIVE OUR DEBTORS: BANKRUPTCY AND CONSUMER CREDIT in AMERICA 22-23 (1989) (finding that only 4% of debtors in a sample of 1,529 bankruptcy cases filed pro se petitions).
75. See Hildebrand, supra note 45, at 10 (describing mortgage servicers' inability or lack of effort to make their records match debtors' plans or to comply with the requirements of the Bankruptcy Code, such as disclosing fees and costs).
76. See MODEL RULES OF PROF. CONDUCT pmbl. para. 2 (2007) ("As advocate, a lawyer zealously asserts the client's position under the rules of the adversary system.").
77. Email from Keith M. Lundin, Bankr. Judge, U.S. Bankr. Court for the Middle Dist. of Tenn., to Henry J. Sommer (July 12, 2004) (on file with the Texas Law Review) (recounting the discussion at a session on mortgage-servicing problems in Chapter 13 cases, which occurred at a 2004 National Association of Chapter 13 Trustees meeting). The grievances aired were: (1) servicers are unable to prepare correct pre-petition claims in Chapter 13 cases; (2) proofs of claim are filed without balances or are bloated with illegal and fraudulent fees sometimes totaling several thousand dollars; (3) irreconcilable and unexplained balances appear on amended proofs of claim; (4) servicers provide no contact information; and (5) servicers refuse to provide loan payment histories. Id.
78. See Hildebrand, supra note 45, at 40 (describing judges' critical responses to mortgagees' "deplorable records").
79. Maxwell v. Fairbanks Capital Corp. (In re Maxwell), 281 B.R. 101 (Bankr. D. Mass. 2002).
80. Id. at 114.
81. Id. at 117.
82. Id. at 120, 132.
83. Agreement for Judgment at 2, In re Maxwell, 281 B.R. 101 (No. 00-142383) (on file with the Texas Law Review).
84. In re Wines, 239 B.R. 703, 706 (Bankr. D.N.J. 1999).
85. Id. at 709.
86. In re Garvida, 347 B.R. 697 (B.A.P. 9th Cir. 2006).
87. Id. at 707-08.
88. 12 U.S.C. § 2617(c)(l)(2006).
89. See In re Thompson, 350 B.R. 842, 852 (Bankr. E.D. Wis. 2006) (explaining that the debtors could reduce the amount of the claim via recoupment even though RESPA does not explicitly authorize it).
90. Id. at 844-45.
91. No. 07-36683, 2008 WL 3539802 (Bankr. S.D. Tex. Aug. 13, 2008).
92. *13.
93. Proof of Claim, In re Farmer, No. 04-35273 (Bankr. D. Mass. June 1, 2004) (on file with the Texas Law Review).
94. See Hildebrand, supra note 45, at 10.
95. See, e.g., In re Schuessler, 386 B.R. 458, 492-93 (Bankr. S.D.N.Y. 2008) (imposing sanctions requiring the creditor to pay the debtors' attorneys fees and costs caused by the filing of an unsubstantiated motion for relief from the stay); In re Parsley, 384 B.R. 138, 180 (Bankr. S.D. Tex. 2008) (finding that an attorney's misrepresentation of the stay-relief motion was conducted in bad faith, but declining to impose sanctions).
96. 366 B.R. 584 (Bankr. E.D. La. 2007).
97. Id. at 591-98. Perhaps most egregiously, Wells Fargo charged the debtor for sixteen property inspections during the bankruptcy case, but its representative "could not list a single reason why an inspection would have been ordered post-petition, nor could she detail any reason why continuous monthly monitoring of the property was necessary or reasonable." Id. at 598, 597-98.
98. Id. at 589.
99. Id. at 590-91. As a remedy, the court imposed a sanction award of $67,202.45 and ordered Wells Fargo to implement an accurate accounting system for cases in the court's jurisdiction. Jones v. Wells Fargo Home Mortgage (In re Jones), Case No. 03-16518, Adv. No. 06-01093, 2007 WL 2480494, at *8 (Bankr. E.D. La. Aug. 29, 2007) (supplemental memorandum opinion).
100. See In re Parsley, 384 B.R. 138, 181-82 (Bankr. S.D. Tex. 2008) (criticizing the practices of the servicer and its attorneys but determining that the standard for sanctions had not been met); In re Parsley, No. 05-90374, slip op. at 1 (Bankr. S.D. Tex. Feb. 12, 2007) (order requiring Countrywide to appear and show cause) (finding that the servicer and its attorneys failed to sufficiently review the debtor's payment history before filing its motion for relief from the stay, and ordering that representatives of the servicer and its attorneys appear to show cause for why they should not be sanctioned).
101. Parsley, 384 B.R. at 183.
102. See, e.g., Payne v. Mortgage Elec. Registration Sys. (In re Payne), 387 B.R. 614, 625 (Bankr. D. Kan. 2008) (focusing on the fact that the creditor did not change its accounting when a homeowner filed bankruptcy, and describing how the creditor misapplied the debtor's Chapter 13 plan payments); Nosek v. Ameriquest Mortgage Co. (In re Nosek), 363 B.R. 643, 650 (Bankr. D. Mass. 2007) (rejecting computer-software shortcomings as an excuse for failing to correctly apply the debtors' payments).
103. See, e.g., In re Allen, No. 06-60121, slip op. at 7-8 (Bankr. S.D. Tex. Jan. 9, 2007) (finding that a large creditor's law firm had filed an erroneous and unsubstantiated objection to a plan's confirmation).
104. In re Rivera, 342 B.R. 435, 463-64 (Bankr. D.N.J. 2006).
105. Id. at 467; see also Allen, No. 06-60121, slip op. at 7 (describing the close relationship between servicers and their "outside" counsel, who receive some pleadings "set up" with data from the servicer's computer system).
106. In re Schwartz, 366 B.R. 265, 266 (Bankr. D. Mass. 2007). In Schwartz, the "creditor" claimed to have foreclosed before the bankruptcy filing but was ultimately unable to show that it had the right to undertake any foreclosure activity. Id. at 269.
107. See Harris v. First Union Mortgage Corp. (In re Harris), Case Nos. 96-14029-MAM & 00-11321-MAM-13, Adv. No. 99-1144, 2002 Bankr. LEXIS 771, at *10, *13, *30 (Bankr. S.D. Ala. May 10, 2002); Slick v. Norwest Mortgage Inc. (In re Slick), Case No. 98-14378-MAM, Adv. No. 99-1136, 2002 Bankr. LEXIS 772, at *11-12, *25 (Bankr. S.D. Ala. May 10, 2002) (both refusing to award attorneys fees to a mortgagee for proof-of-claim-preparation fees that were not fully disclosed to the mortgagor). In Nevada, a proposed class action suit was filed to challenge Ocwen Federal Bank's practice of including a "proof of claim fee" in claims filed in Chapter 13 cases; the case was transferred to the Panel on Multidistrict Litigation and remains pending. See In re Dunlap, Case No. 03-14317, Adv. No. 03-1429, slip op. at 1-4 (Bankr. D. Nev. Jan. 26, 2005) (describing the facts of the case).
108. The National Consumer Law Center's Web site lists the Fairbanks Capital Corp. case as one of its recent successes and provides the pertinent case documents. Nat'l Consumer Law Ctr., Examples of NCLC's Litigation, http://www.consumerlaw.org/action-agenda/cocounseling/eamples-litigation. shtml#fairbanks; see also Complaint for Permanent Injunction and Other Equitable Relief and Monetary Civil Penalties at 1-2, United States v. Fairbanks Capital Corp., No. 03-12219 (D. Mass. Nov. 12, 2003), available at http://www.consumerlaw.org/initiatives/mortgage-servicing/content/ftc-complaint. pdf (claiming that Fairbanks Capital engaged in "unfair or deceptive acts or practices" in violation of the Federal Trade Commission Act, the Fair Debt Collection Practices Act, and the Fair Credit Reporting Act); First Amended and Consolidated Class Action Complaint at 3, Curry v. Fairbanks Capital Corp., No. 03-10895 (D. Mass. Dec. 1, 2003), available at http://www. consumerlaw.org/initiatives/mortgage-servicing/content/ Consolidated _Class_Complaint.pdf ("Fairbanks has engaged in a nationwide scheme of illegal, unfair, unlawful, and deceptive practices that violate both federal and state law.").
109. See Settlement Agreement and Release at 12, 25-27, Curry v. Fairbanks Capital Corp., No. 03-10895 (D. Mass. Nov. 14, 2003), available at http://www.consumerlaw.org/initiatives/mortgage-servicing/content/ settlement.pdf (providing for the creation of a $40-million-dollar Redress Fund and for additional benefits to class members).
110. Bear to Pay $28 Million to Settle Loan Complaint, N.Y. TIMES, Sept. 10, 2008, at C4; see also Fed. Trade Comm'n v. EMC Mortgage Corp., No. 4:08-CV-338 (E.D. Tex. Sept. 9, 2008) (stipulated final judgment and order).
111. 12 U.S.C. §2605(2006).
112. Consumers themselves, or their attorneys (including bankruptcy attorneys), may not be aware of the law. Also, consumers often do not hire attorneys until foreclosure is imminent, at which time a qualified written request and its sixty-day response window may not be an expedient option.
113. Guttentag, supra note 19.
114. For example, on its Web site, HUD lists eight categories of complaints that consumers can file. None of the categories include mortgage servicing. U.S. Dep't of Housing and Urban Dev., Complaints, http://www.hud.gov/complaints (last updated Oct. 6, 2006) [hereinafter U.S. Dep't of Housing and Urban Dev., Complaints]. In addition, HUD does not make available any data sets on mortgage-servicing abuse. See U.S. DEP'T OF HOUSING AND URBAN DEV., DATA SETS AVAILABLE FROM HUD USER 4-10, available at http://www.huduser.org/Datasets/datasetsO6.pdf (describing the data sets that are available from HUD).
115. See Peg Brickley, Countrywide Deal with Critic is Disputed, WALL ST. J., Aug. 11, 2008, at A3 (reporting that the Justice Department has brought actions in Pittsburgh, Atlanta, Ohio, and Florida for purported misbehavior by Countrywide in consumer bankruptcy cases); Carrie Teegardin, Couple Lose Home in Countrywide Dispute, but May Yet Win, ATLANTA J.-CONST., Mar. 30, 2008, at IE (describing the U.S. Trustee's involvement in a Georgia bankruptcy case after the debtor lost her home to foreclosure despite filing for bankruptcy).
116. See, e.g., Walton v. Countrywide (In re Sanchez), Case No. 01-042230, Adv. No. 08-1176, slip op. at 5 (Bankr. S.D. Fla. Oct. 2, 2008) (memorandum opinion and order granting Countrywide's motion to dismiss) (holding that the U.S. Trustee does not have authority to "pursue punitive sanctions on behalf of the public by way of an adversary proceeding").
117. Id.
118. See. e.g., In re Parsley, 384 B.R. 138, 145-47 (Bankr. S.D. Tex. 2008) (finding that the U.S. Trustee acted within its authority in participating in show-cause proceedings against a mortgage servicer and its attorneys); see 11 U.S.C. § 307 (2006) (granting wide authority to the U.S. Trustee in bankruptcy cases).
119. Press Release, Pew Charitable Trusts, 1 in 33 Homeowners Projected to Be in Foreclosure Within the Next Two Years (Apr. 16, 2008), available at http://www.pewtrusts.org/news-room-detail.aspx?id=37950.
120. Ben Rooney, Bankruptcy Filings Surge to 1 Million-Up 29%, CNNMONEY.COM, Aug. 27, 2008, http://money.cm.com/2008/08/27/news/economy/ bankruptcy/.
121. When the study began, Tara Twomey was a clinical instructor at Harvard Law School. She is currently a Lecturer in Law at Stanford Law School and a consultant for the National Association of Consumer Bankruptcy Attorneys and the National Consumer Law Center. Neither organization had any involvement in this research.
122. The Endowment for Education is a nonprofit and nonpartisan organization. In funding the grant, the Endowment does not endorse or express any opinion about the methodology utilized, any conclusions, opinions, or results contained in this Article, or any other findings based on the research funded by the Endowment.
123. Am. Bankr. Inst., Annual Non-business Filings by Chapter (2000-2006), http://www.abi world.org/AM/AMTemplate.cfm?Section=Home&CONTENTID= 47461&TEMPLATE=/CM/Cont entDisplay.cfm.
124. All homeowners were included in the sample, regardless of whether they had mortgages. In the sample, 96% of homeowners had outstanding mortgage debt when they filed bankruptcy.
125. For example, the sample contains only two cases from Wyoming, a district with few Chapter 13 filings. At the other extreme, the sample contains 164 cases from the Northern District of Georgia because that district has a large number of Chapter 13 cases.
126. Data from the Consumer Bankruptcy Project III (CBP) indicate that home ownership is much more prevalent among Chapter 13 debtors than Chapter 7 debtors. In the CBP's core sample of 1,250 cases filed in 2001 in five judicial districts, 30% of Chapter 7 cases were filed by homeowners. In contrast, 75% of Chapter 13 debtors owned their homes when they filed bankruptcy. The CPB data are on file with the author.
127. Scarce data exist on how homeowners fare in bankruptcy. See Melissa B. Jacoby, Bankruptcy Reform and Homeowners hip Risk, 2007 U. ILL. L. REV. 323,345 ("Although scholars of mortgage debt and foreclosure generally are aware that some bankruptcy filers own homes, chapter 13's specific anti-foreclosure function has not received sufficient scholarly attention."). The most extensive study to date was based on cases
128. See 11 U.S.C. § 1322(b)(3), (b)(5) (2006) (providing for a bankruptcy-repayment plan to cure a default on a debtor's primary residence).
129. See, e.g., FED. R. BANKR. P. 3001 (describing the procedures for claims, without differentiation for various chapters of bankruptcy relief).
130. See Jacoby, supra note 128, at 327-28 (reviewing the additional legal tools available to defaulting mortgage borrowers filing under Chapter 13 as compared to Chapter 7).
131. Our sample represents 49% of the judicial districts in the United States. The sample includes twenty-three states in addition to the District of Columbia: Alabama, Arkansas, California, Colorado, Georgia, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, New Hampshire, North Carolina, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, West Virginia, and Wyoming.
132. See BARLOW BURKE, REAL ESTATE TRANSACTIONS 336 (4th ed. 2006) (discussing nonjudicial power-of-sale foreclosure and stating that it is both cheaper and faster than judicial foreclosure); GRANT NELSON & DALE WHITMAN, REAL ESTATE FINANCE LAW 636 (5th ed. 2007) (characterizing the rationale of power-of-sale foreclosure as removing the "substantial additional burdens" of judicial foreclosure). Judicial foreclosure procedures vary depending on state law. Typically these steps include the filing of a lawsuit and a judgment, followed by a court order authorizing a judicial sale conducted pursuant to statutory procedures. BURKE, supra, at 334. Nonjudicial foreclosure typically proceeds under a deed of trust that permits a third-party trustee, upon default, to sell the property in a private sale. See id. at 336 (identifying the deed of trust as "the more commonly used form of security instrument" in a power-of-sale foreclosure, and noting that the individual conducting the sale under this system will usually be a trustee). Although some public notice is required by all states, a nonjudicial foreclosure, as its name suggests, does not require court supervision or the filing of a lawsuit. See id. at 337 (describing how a power-of-sale foreclosure relieves mortgagees of the burden of initiating litigation to enforce a lien).
133. For those cases in which a foreclosure was filed before bankruptcy, it is possible that in judicial-foreclosure states the lenders were more likely to have retained attorneys before the bankruptcy than in \ states. It is unclear if such attorney involvement would result in more complete or accurate bankruptcy pleadings. $135. Most documents were obtained from the Public Access to Court Electronic Records (PACER) service. We thank the chief judges of each district in the Mortgage Study, with the sole exception noted below, for granting us a research waiver of PACER fees. The Southern District of Texas denied our application for a fee waiver, stating that it had a blanket policy against such waivers, notwithstanding the written policy of the Judicial Conference of the United States that individual researchers associated with educational institutions are eligible for waivers if they can show cause. See U.S. Judicial Conference, Electronic Public Access Fee Schedules, (effective Mar. 11, 2008), available at http://pacer.psc.uscourts.gov/ documents/epa-feesched.pdf. When PACER did not appear to contain complete court files, we obtained paper records. For example, in the Eastern and Middle Districts of North Carolina, proofs of claim are not available on PACER. We thank Edward Boltz, of the Law Offices of John T. Orcutt, and Reid Wilcox, Clerk of the Bankruptcy Court for the Middle District of North Carolina, for their help in obtaining these documents.
134. See Culhane & White, supra note 42, at 767 (mentioning that their study data included information from debtors' Schedule I and J filings); Scott F. Norberg & Andrew J. Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, 39 CREIGHTON L. REV. 473, 486 n.25 (2006) (identifying their data as collected from debtors' Schedule I filings); Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Filings, 59 STAN. L. REV. 213, 219 (2006) (describing financial data used in the study as drawn from "schedules filed with the court").
135. See Mann, supra note 25, at 61 (suggesting that one of the problems with the Federal Reserve's Survey of Consumer Finance data is that those surveyed often underreport their spending); David B. Gross & Nicholas S. Souleles, Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior?: Evidence from Credit Card Data, 117 Q.J. ECON. 149, 151 n.2 (2001) (asserting that a 1995 survey understates household borrowing on bankcards because survey participants "substantially underreport their bankcard debt").
136. Real property that was not the debtor's principal residence was ignored, as were any corresponding proofs of claim for such properties. No debtor in the sample was permitted to have more than one principal residence.
137. We coded data from each debtor's docket; petition; Schedules A, C, D, I, and J; Form B22; and Chapter 13 plan. These documents were available and complete in over 99% of sampled cases; there are very few missing observations. We coded only the original version of the schedules, including any separate or later filed schedules that were not included in the original schedules. We did not code amendments to schedules because we were interested in the debtors' initial ability to gauge the amount of their mortgage debts.
138. The exact number of data points actually coded varied across cases based on several factors, including the number of home loans, the type of loan, and the quantity of documentation attached to the proof of claim.
139. Two examples illustrate this type of check: (1) we reviewed any proof of claim dated before April 2006, when the cases were filed; and (2) we checked for any dollar figures that began with a decimal point or exceeded $1 million.
140. The error rate was 1.04%. To calculate the error rate, we compared the original coding to the recoding, determined the number of errors in the initial coding, and divided this number by the number of data points.
141. See Official Bankruptcy Form 10 (2007), supra note 41 (requiring a creditor who fills out a proof of claim for a secured claim to state the value of property that is collateral for the debt, attach copies of documentation of the lien, and state the amount past due on the claim (the arrearage) as of the date the bankruptcy case was filed). Note that the proof-of-claim form has been amended slightly and that the new version will go into effect in December 2008. See Official Bankruptcy Form 10 (2008), available at http://www.uscourts.gov/rules/BK-Forms-Pending-2008/B10- Form10-1208.pdf.
142. As noted in Part II (Methodology), we checked for proofs of claim at two points-six months after each case's filing date and over one year after each case's filing date-to ensure the completeness of the proof-of-claim data. For a discussion of mortgagees' incentives to file claims, see supra text accompanying notes 41-46. $145. FED. r. BANKR. P. 3001 (a).
143. Official Bankruptcy Form 10 (2007), supra note 41.
144. It is possible that a single, integrated document could perform the function of both the note and the mortgage in creating the parties' rights and obligations in the transaction. We did not identify such instances in the sample. Because consumer home loans are typically intended for sale on the secondary market, separation of the note and the mortgage helps ensure that the note is a negotiable instrument that will be subject to the holder-in-due-course defense upon transfer.
145. FED. R. BANKR. P. 3001(c) ("When a claim, or an interestin property of the debtor securing the claim, is based on a writing, the original or a duplicate shall be filed with the proof of claim.").
146. Id. 3001(d) ("If a security interest in property of the debtor is claimed, the proof of claim shall be accompanied by evidence that the security interest has been perfected.").
147. For example, some states have specific laws that govern foreclosure costs and fees. See, e.g., MICH. COMP. LAWS § 600.2431 (2007) (capping attorneys fees in a nonjudicial foreclosure at no more than $75 if the mortgage does not specifically contract for such attorneys fees).
148. See, e.g., FED. R. BANKR. P. 3001 advisory committee's notes (indicating that the requirements for mortgage proofs have remained largely identical since at least 1983).
149. These data come from the proof of claim initially filed in each case and do not reflect any attachments that may have been added if mortgagees filed amended claims. The purpose here is to measure compliance with the clear obligations of the rules in the first instance, not to determine whether creditors responded if a party objected or requested information. @153. See infra subpart III(B).
150. In most instances, the note contains broad language on charges and costs. For example, the Fannie Mae uniform instrument gives the noteholder a "right to be paid back by [the borrower] for all of its costs and expenses in enforcing this Note to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees." Fannie Mae, Multistate Fixed-Rate Note-Single Family 1 (instrument revised Jan. 2001), available at https://www.efan niemae.com/sf/formsdocs/documents/notes/ pdf/3200.pdf. Even under this broad language, debtors may have challenges to the mortgagees' claims. For example, they could contest the " reasonableness" of asserted attorneys fees or argue that the language on "costs and expenses" is modified by "enforcing this Note" so that costs such as fax fees cannot be justified by this provision.
151. See Nosek v. Ameriquest Mortgage Co. (In re Nosek), 386 B.R. 374, 383-85 (Bankr. D. Mass. 2008) (imposing monetary sanctions on Ameriquest, Wells Fargo, and several attorneys for misrepresenting the identity of the holder of the note in bankruptcy proceedings); see also In re Foreclosure Cases, 521 F. Supp. 2d 650, 654 (S.D. Ohio 2007) (dismissing foreclosure cases for lack of standing when ownership of the note was not established).
152. See John Rao, Debt Buyers Rewriting of Rule 3001: Taking the "Proof" Out of the Claims Process, AM. BANKR. INST. J., July-Aug. 2004, at 16, 16 (stating that Rule 3001 supporting documents are not provided to purchasers of credit-card debt).
153. See Steven W. Rhodes, A Preview of "Demonstrating a Serious Problem with Undisclosed Assets in Chapter 7 Cases," NORTON BANKR. L. ADVISER, May 2002, at 1, 1-2 (finding in a one-district sample that 70% of asset cases-a small fraction of all Chapter 7 cases generally- contained undisclosed or undervalued assets in the debtors' lists of assets and valuations); see also Edith H. Jones & James I. Shepard, Recommendations for Reform of Consumer Bankruptcy Law by Four Dissenting Commissioners, in REPORT OF THE NATIONAL BANKRUPTCY REVIEW-COMMISSION 1029, 1057-58 (1997), available at http://govinfo.library.unt.edu/nbrc/report/24com mvi.pdf ("The Commission repeatedly heard testimony that the information reported in the debtors' schedules is often unreliable.").
154. Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) of 2005, Pub. L. No. 109-8, § 603, 119 Stat. 23, 122 (codified at 11 U.S.C. §§ 521, 727 and 28 U.S.C. § 586 (2006)) (authorizing random audits of debtors).
155. Id. § 316, 119 Stat. at 92 (codified at 11 U.S.C. § 521(i)) (automatically dismissing a bankruptcy case if the debtor does not provide required information, such as payment advices).
156. Because debtors almost always affirmatively seek bankruptcy relief, it may be fair to impose increased burdens for disclosure on them as the "moving party." Nonetheless, creditors who participate in cases also submit themselves to federal process and should be required to comport with the rules that govern their actions in bankruptcy cases.
157. 11 U.S.C. § 544 (2006). This provision is commonly called the "strong arm" power because it permits the trustee to "knock off" security interests that are not properly perfected under state law to defeat certain other types of creditors.
158. See WARREN & WESTBROOK, supra note 2, at 478 (explaining that a creditor in an avoidance action "may face the loss of its security interest or an order requiring it to pay back amounts it received from the debtor shortly before bankruptcy"); id. at 285 ("Just as secured creditors in Chapter 7 enjoy enhanced status and are entitled to greater repayment than unsecured creditors, the secured creditor in Chapter 13 enjoys substantially better protection than the unsecured creditor."). Without a security interest, the mortgage is an unsecured obligation. Thus, the house is immediately available to the debtor as an asset to use as collateral. After committing all disposable income for the applicable commitment period in the Chapter 13 case, a debtor then may discharge any remaining obligation on the mortgage claim because it is an unsecured debt. The combination of avoiding a security interest and completing a Chapter 13 plan results in the debtor owning the house free and clear.
159. FED. R. BANKR. P. 3001(d).
160. In addition to the failure to properly perfect the mortgage by complying with state recording statutes, some trustees who routinely demand and scrutinize mortgage documents have identified other errors that invalidate a mortgage (such as the failure of a notary to witness the mortgage). See, e.g., In re Fisher, 320 B.R. 52, 65 (E.D. Pa. 2005) (holding that a bankruptcy trustee may avoid a mortgage under 11 U.S.C. § 544 on the basis that it was improperly proved and recorded); In re Marsh, 12 S.W.3d 449, 454 (Term. 2000) (ruling that, under Tennessee law, a deed of trust that lacks a notary seal acknowledging execution is invalid as a lien).
161. To access the Fannie Mae/Freddie Mac uniform instruments for each state, see Fannie Mae, Legal Documents-Security Instruments, https://www.efanniemae. com/sf/formsdocs/documents/secinstruments/#standard [hereinafter Fannie Mae Standard Instruments]. To access the standard instrument for a particular state, follow the hyperlink in the Standard.doc column in the Standard Instruments table. Note that the standard instrument for Maine does not include "reasonable period of time" language, and the standard instrument for New Jersey requires the lender to immediately apply any payments it accepts. Id.
162. The top and bottom of the vertical lines in Figure 2 show that there was at least one district in which no claims (0%) had a required type of documentation and at least one district in which all claims (100%) had a required type of documentation. These findings largely result from the presence in the sample of some districts with very few cases. Because the addition of a single case could dramatically change the compliance rate in those districts, the absolute range of compliance is not very useful. Thus, the data on interdistrict variation are best used to observe a general pattern, as shown by the quartile findings.
163. See U.S. CONST. art. I, § 8, cl. 4 (stating that Congress has the power "to establish. . . uniform laws on the subject of bankruptcies throughout the United States"). See generally Erwin Chemerinsky, Constitutional Issues Posed in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 79 AM. BANKR. L.J. 571, 592-94 (2005) (discussing the effect of the uniformity requirement in the Bankruptcy Clause and the judicial interpretations of what constitutes uniformity).
164. See Chemerinsky, supra note 167, at 592-94 (cataloging unsuccessful challenges under the uniformity requirement).
165. See supra note 46 (describing other local-legal-culture effects in bankruptcy).
166. See In re Wingerter, No. 06-50120 (Bankr. N.D. Ohio Oct. 1, 2007) (opinion resolving a show-cause order) ("A policy of filing a proof of claim without having possession of the supporting documents, but withdrawing the claim if the debtor subsequently files an objection to the claim's validity smacks of gamesmanship and creates an unacceptable risk that distributions to other creditors will be unfairly reduced.").
167. In some districts, the variation was obviously due to the differing practices of the attorneys hired to represent the servicer. In other instances, however, the same attorney filed proofs of claim in several different formats, probably reflecting the fact that the servicer itself is preparing the proof of claim and merely transmitting it to the attorney for review and filing with the court.
168. See 11 U.S.C. § 704(1) (2006) (prescribing that the trustee shall "close such estate as expeditiously as is compatible with the best interests of parties in interest"). A trustee is potentially subject to liability to the creditors for failing to close an estate in a cost-efficient manner. See In re C. Keffas & Son Florist, Inc., 240 B.R. 466, 474 (Bankr. E.D.N.Y. 1999) ("If the trustee fails to make this necessary cost-benefit analysis, then the trustee will necessarily breach the statutory mandate under 11 U.S.C. § 704(1), and incur a liability for the damages unjustifiably imposed upon the creditors . . . .").
169. Official Bankruptcy Form 10 (2007), supra note 41.
170. Each charge was categorized as one of the following: principal, interest, escrow, late charges, foreclosure fees or costs, nonsufficient funds charges, property inspection fees, broker price opinions or appraisals, corporate advances, post-petition fees, suspense funds, or other. The last category was residual and used when the charge did not fit another category or the fees were not broken out into one of the above categories.
171. The categories set out above, supra note 174, are consistent with those on the Model Proof of Claim itemization developed by a joint committee of Chapter 13 trustees and mortgage servicers. See NAT'L ASS'N OF CHAPTER 13 TRUSTEES MORTGAGE COMM., MODEL PROOF OF CLAIM ATTACHMENT 2-3 (2007) [hereinafter MODEL PROOF OF CLAIM ATTACHMENT]. This model proof of claim attachment was included in a 2007 report issued by the National Association of Chapter 13 Trustees Mortgage Committee. NAT'L ASS'N OF CHAPTER 13 TRUSTEES, REPORT OF MORTGAGE COMMITTEE (2007) [hereinafter REPORT] (on file with the Texas Law Review).
172. Charges or amounts labeled merely as pre-petition were identified in sixty-three claims, fewer than 5% of all claims. This count excludes any fees labeled as "pre-petition attorneys' fees."
173. For example, one claim's "itemization" listed $5,391 described only as "other." Another claim requested $3,023 for "delinquency expenses."
174. "NSF" stands for nonsufficient funds.
175. See supra Part I.
176. This point reinforces the problems created when claims are not supported by this documentation, particularly for subprime loans that do not conform to Fannie Mae's or Freddie Mac's standards.
177. For example, one of the notes from a Tennessee case included in the Mortgage Study sample contains the following language: "COSTS OF COLLECTION AND ATTORNEYS' FEES-I agree to pay you all reasonable costs you incur to collect this debt or realize on any security. This includes, unless prohibited by law, reasonable attorneys' fees."
178. See Fannie Mae Standard Instruments, supra note 165. In almost all states, the Fannie Mae standard instrument provides: If [Borrower defaults (including by filing bankruptcy)], then Lender may do and pay for whatever is reasonable or appropriate to protect Lender's interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property. Lender's actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorneys' fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding. Id. The standard instruments of Georgia, New York, and Wisconsin include substantially similar language. Id. Maine's standard instrument provides that the lender may "do and pay for whatever is necessary to protect the value of the Property and Lender's rights in the Property." Id.
179. See, e.g., Dougherty v. N. Fork Bank, 753 N.Y.S.2d 130, 131 (N.Y. App. Div. 2003) (holding that the payoff-quote fee of $25 was not permissible under state law); see also GA. CODE ANN. § 7-6A-3(4) (2004) (generally prohibiting a payoff fee but allowing a limited fee of $10 if the borrower requests a faxed copy of the payoff amount or has made other recent payoff requests).
180. In re Stewart, 391 B.R. 327, 344-45 (Bankr. E.D. La. 2008).
181. See Michael LaCour-Little, The Evolving Role of Technology in Mortgage Finance, 11 J. HOUSING RES. 173, 192 (2000) ("Payoff requests can be handled by incorporating the related faxback technology, in which printed payoff statements (as would be required for a refinance loan) can be automatically faxed back to a telephone number entered during the same automated telephone transaction.").
182. The standard Fannie Mae note seems to prohibit the pyramiding of late fees, stating that the borrower will pay a late charge "only once on each late payment." See Fannie Mae Standard Instruments, supra note 165. Some transactions use different notes (and thus, it is important that a copy of the note accompanies the proof of claim), and some servicers may not honor the terms of the notes, either intentionally or inadvertently.
183. See JOHN RAO ET AL., NAT'L CONSUMER LAW CTR., FORECLOSURES: DEFENSES, WORKOUTS, AND MORTGAGE SERVICING 154-55 (2d ed. 2007) (discussing the use of suspense accounts).
184. The instruction on the proof-of-claim form says that the claimant "must attach to this proof of claim form copies of documents that show the debtor owes the debt claimed." Official Bankruptcy Form 10 (2007), supra note 41. This arguably requires not just the note to show the existence of the original debt, but also a current payment history that supports that the debtor actually owes the amount of the claim.
185. See, e.g., In re Ocwen Fed. Bank FSB Mortgage Servicing Litig., Case No. 04-CV-2714, MDL-1604, 2006 WL 794739, at *1 (N.D. Ill. Mar. 22, 2006) (denying a motion to dismiss a multidistrict litigation suit that alleged, inter alia, that the servicer misapplied payments and improperly imposed late fees).
186. Most loan instruments specify how payments are to be applied, and violations of this language are potential breaches of contract.
187. See United States v. Fairbanks Capital Corp., No. 03-12219, 2004 WL 3322609, at *1 (D. Mass. May 12, 2004) (approving the settlement agreement of the FTC's deceptive-trade claims against Fairbanks Capital Corporation).
188. United States v. Fairbanks Capital Corp., No. 03-12219 (D. Mass. Nov. 21, 2003) (order preliminarily approving stipulated final judgment), available at www.ftc.gov/os/2003/11/0323014 order.pdf.
189. See In re Stewart, 391 B.R. 327, 343-45 (Bankr. E.D. La. 2008) (criticizing a servicer for inspecting the debtor's property on average every fifty-four days after default, notwithstanding that every inspection reported the property to be in good condition).
190. Transcript of Hearing at 3, In re Waring, No. 06-40614 (Bankr. D. Mass. July 27, 2007). 195. In addition to the example given in Table 1, two different proofs of claim from the Northern District of Texas requested payment of property-preservation fees of $105; another property-preservation fee from the Southern District of Georgia was $240. Inspection and appraisal were frequently combined in a laundry list of fees, making it impossible to determine whether the inspection or appraisal parts of these charges were reasonable. See supra notes 176-78 and accompanying text.
191. See generally U.C.C. § 2-302 (2004) (acknowledging the authority of courts to void unconscionable portions of a contract).
192. In the remainder of this subpart, I use the term "bankruptcy fee" as shorthand to describe these fees. I did not include any fees that were identified as related to actual post-petition litigation, such as a motion for relief from the stay or an objection to confirmation.
193. See, e.g., Tate v. NationsBanc Mortgage Corp., 253 B.R. 653, 655-56 (Bankr. W.D.N.C. 2000) (ruling that a creditor cannot "hide" attorneys fees for preparing a proof of claim in the claim itself without court approval).
194. See In re Ezzell, No. 07-34780, slip op. at 5-6 (Bankr. S.D. Tex. Jan. 14, 2008) (disallowing attorneys fees for failure to comply with Rule 2016); Tate, 253 B.R. at 665 (ruling that a creditor's attempts to claim attorneys fees under a proof of claim is a violation of Rule 2016); see also FED. R. BANKR. P. 2016 (setting forth the application requirements for an entity seeking compensation for services from the bankruptcy estate).
195. See, e.g., Atwood v. Chase Manhattan Mortgage Co. (In re Atwood), 293 B.R. 227, 232 (B.A.P. 9th Cir. 2003) (rejecting Tate's reasoning and holding that a proof of claim satisfies the due process requirements for recovering attorneys fees).
196. See, e.g., In re Madison, 337 B.R. 99, 103, 103-04 (Bankr. N.D. Miss. 2006) ("[T]he attorney fees, costs and charges must be itemized so that any interested party may object if so desired."); Powe v. Chrysler Fin. Corp. (In re Powe), 281 B.R. 336, 347 (Bankr. S.D. Ala. 2001) (concluding that fees labeled "attorneys fee" or "atty fee" were not specific enough to provide the requisite notice of the nature of the fee).
197. See, e.g., In re Plant, 288 B.R. 635, 644 (Bankr. D. Mass. 2003) (holding that there is no need for a creditor to incur the time and expense of preparing a fee application absent a challenge by a debtor).
198. A review of the claims in the Mortgage Study shows that the bankruptcy fee of Bank of America was S250. Yet, Chase Home Finance, LLC imposed a bankruptcy fee of half that amount, or $125. Because these lenders are large, national institutions, presumably their actual costs for preparing a proof of claim would be quite similar. Nevertheless, the data show a disparity. It appears that debtors whose mortgages are held by Bank of America must pay $125 more than debtors whose mortgages are held by Chase Home Finance, LLC in order to complete their plans.
199. For example, in the Eastern District of Arkansas, bankruptcy fees ranged from $125 to $800.
200. See, e.g., In re Boddy, 950 F.2d 334, 337 (Bankr. W.D. Ky. 1991) (holding that a lower court abused its discretion by employing a "normal and customary" standard, rather than a lodestar analysis, to calculate the fee award).
201. See infra subpart III(D).
202. The lodestar-versus-flat-fee issue was apparently a point of contention in the work of the National Association of Chapter 13 Trustees' committee on proofs of claim. The servicers wrote separately on this issue to argue that a flat fee should be permissible, analogizing to the flat "nolook" fee that some courts permit for Chapter 13 representation to avoid debtors' counsel having to file a fee application pursuant to Rule 2016 in each case. NAT'L ASS'N OF CHAPTER 13 TRUSTEES MORTGAGE COMM., NOTES BY MORTGAGE SERVICERS ON MORTGAGE SERVICING DURING A CHAPTER 13 BANKRUPTCY 3-4 (2007) (included in Report, supra note 175).
203. This may be particularly true when the charge was described as "POC prep fee" or "plan review" fee. Arguably, neither of the prior-quoted activities is strictly necessary to "defend th[e] mortgage," nor are they costs from "prosecut[ing] all necessary claims and actions to prevent or recover for any damage to or destruction of the property," although such language commonly appears in the standard mortgage documents upon which lenders rely to collect bankruptcy fees. See RAO ET AL., supra note 187, at 176 (reproducing a provision contained in standard mortgages that a large loan-servicing company relies on to impose bankruptcy-monitoring fees). Further, the preparation or filing of a proof of claim and the review of a proposed Chapter 13 plan may not constitute an "appearance" by the lender, which is a prerequisite to the borrower's becoming obligated to pay the lender's costs and expenses. Id. 209. SEE ID. AT 177 ("IF ALL THE LENDER IS DOING IS 'MONITORING' THE BANKRUPTCY, THAT IS, RECEIVING COURT NOTICES, READING THEM, KEEPING THEM, AND SO FORTH, THEN THESE ACTIVITIES DO NOT CONSTITUTE THE PRACTICE OF LAW AND SHOULD NOT BE COMPENSABLE AS AN ATTORNEY FEE.").
204. SEE ID. (CONCLUDING THAT ROUTINE ADMINISTRATIVE SERVICES ARE GENERALLY NOT COMPENSABLE UNDER ANY READING OF TYPICAL MORTGAGE PROVISIONS THAT PERMIT THE RECOVERY OF COSTS).
205. SEE GRETCHEN MORGENSON, CAN THESE MORTGAGES BE SAVED?, N.Y. TIMES, Sept. 30, 2007, § 3, at 1 ("Borrower advocates fear that fees imposed during periods of delinquency and even foreclosure can offset losses that lenders and servicers incur.").
206. See supra subpart I(D) (discussing the Jones v. Wells Fargo and In re Parsley cases).
207. See Morgenson, supra note 211, at 8 (reporting that a payoff-demand statement that Countrywide provided to a borrower had line items identified only as "fees due" and "additional fees and costs" that totaled $8,525).
208. See supra note 38 and accompanying text.
209. 11 U.S.C. § 1322(b)(5) (2006).
210. See 2 LUNDIN, supra note 47, § 133.1 (noting that several bankruptcy courts have formulated factor tests for the reasonableness determination and citing decisions that permitted the curing of defaults for a wide variety of time periods).
211. See 11 U.S.C. § 1328(a) (requiring the debtor to complete all payments under the plan before the court may discharge debts provided thereunder).
212. See Jacoby, supra note 128, at 337 (arguing that the failure of debtors' lawyers to screen their clients for their ability to complete a Chapter 13 repayment plan results in more unsuitable debtors in Chapter 13 bankruptcy).
213. It was not possible to perform this matching for every home loan. Among the 2, 164 home loans in the sample, only 1,768 proofs of claim were filed.
214. For the gap analysis, some loans and their corresponding claims had to be eliminated. First, loans were eliminated if the Schedule D or the proof of claim had a zero or a blank entry for the amount of the debt. These are usually placeholders, akin to listing the debt as "unknown." Second, loans were eliminated if the schedules and claims were not attempting to calculate the same thing. This usually occurred because one party listed only the arrearage amount and the other calculated the entire outstanding mortgage debt-both arrearage and principal. These cases were excluded from the gap analysis because the disagreement was in large part a result of the parties' not trying to communicate the same debt. In a very small number of instances, when both the creditor and the debtor clearly provided only the arrearage amount, the cases were used in the gap analysis because the discrepancy in calculation can be fairly compared. Finally, twelve loans were removed as outliers. Two criteria were used to identify these situations. Six loans were eliminated because the gap between the claim and the scheduled debt exceeded 200% of the amount of the scheduled debt. An additional six loans were deemed outliers because the gap exceeded $100,000 in absolute dollars and the gap was greater than 50% of the amount of the scheduled debt.
215. The debtors' schedules should only reflect the amount due at the time of the bankruptcy. The proof-of-claim forms should be identical, as the instructions specify that the amount should be the "Amount of Claim as of Date Case Filed." Official Bankruptcy Form 10 (2007), supra note 41. However, some creditors ignored this instruction and listed charges that arose after the bankruptcy was filed and before the claim was filed (a period of usually less than sixty days).
216. The sample size was 1,675. The analysis included those loans in which the claim amount and the scheduled amount were identical (no gap). The standard deviation for the entire sample was $11,480.
217. The average gap among the debtor's-favor claims was S5,376. As with the creditor'sfavor claims, the size of the average reflects a substantial number of claims with very large gaps. The standard deviation of the debtor's-favor claims was 513,704. The standard deviation for the creditor's-favor claims was $9,143.
218. See Lynn M. LoPucki, The Systems Approach to Law, 82 CORNELL L. REV. 479, 481 (1997) (describing systems analysis as a methodology developed to manage complexity).
219. Am. Bankr. Inst., Quarterly Non-business Filings by Chapter (1994-2008), http://www.abi world.org/AM/AMTemplate.cfm?Section=Home&CONTENTID= 49785&TEMPLATE=/CM/Cont entDisplay.cfm.
220. Servicer practices may deter debtors from getting such information. As explained above in subpart I(A), servicers have no reputational concern about poor customer-service response, and so many servicers make it time consuming and difficult for a debtor to reach them. Additionally, the industry practice of imposing "payoff' or "statement" fees discourages debtors from making account inquiries.
221. See supra text accompanying notes 86-91.
222. See supra text accompanying notes 149-54.
223. See supra text accompanying notes 173-74, 209-11.
224. See supra subpart III(C).
225. 11 U.S.C. § 502(a) (2006).
226. Id. § 502(b).
227. FED. R. BANKR. P. 3001(f) ("A proof of claim executed and filed in accordance with these rules shall constitute prima facie evidence of the validity and amount of the claim.").
228. See infra note 238.
229. O. Max Gardner III, Mortgage Securitization, Servicing, and Consumer Bankruptcy, 2 GP SOLO LAW TRENDS & NEWS, Sept. 2005, http://www.abanet.org/genpractice/newsletter/ lawtrends/0509/business/mortgagesecuritization.html.
230. Twenty-five of the forty-four judicial districts had at least one claim objection.
231. Another possibility is that the plan-confirmation process serves as a check on the accuracy of claims. In their proposed Chapter 13 repayment plans, debtors may be relying on their own calculations of the amounts due, rather than using the amounts of the mortgagees' claims as the basis for the required repayment. If the creditor does not object to the plan, the order confirming the plan would trump the claim for purposes of the required payment in bankruptcy. Conversely, creditors may be objecting to the amounts of mortgage debt in the plans, and if the objections are sustained, the plans would be conformed to the creditors' claims. The extent to which confirmed Chapter 13 plans reflect the creditors' claims or the debtors' scheduled amounts, or some compromise between these discrepant numbers, is an empirical question. The difficulty in testing this hypothesis is that, in most districts, the plan contains only the amount of pre-perition arrearage. Yet, some claims did not specify the arrearage at all, while other claims reflect only the combination of pre-petition and post-petition amounts. Thus, despite my efforts to do so, it is impossible to compare either the total claims or the total arrearages contained in confirmed plans to those contained in the proofs of claim in any significant fraction of cases.
232. See also Vicki Mabrey & Ely Brown, Playing the Odds, ABCNEWS.COM, Dec. 14, 2007, http://abcnews.go.com/Business/RealtyCheck/ Story?id=4002397&page=l (interviewing Max Gardner about the "bankruptcy boot camp" that he developed to train attorneys on mortgage issues in bankruptcy cases).
233. 11 U.S.C. § 704(a)(5) (2006).
234. See supra subparts I(A), I(D).
235. The U.S. Trustee recently settled a complaint against Capital One that alleged that the credit-card issuer had filed claims and accepted payments in bankruptcy cases for debts that had been discharged in debtors' prior bankruptcies. Complaint of the U.S. Trustee Phoebe Morse for a Permanent Injunction & Other Equitable Relief at 3, Morse v. Capital One Bank (In re Galley), No. 06-12142-JNF (Bankr. D. Mass. Oct. 2, 2008); see also Amir Efrati, Capital One in Settlement Over Card Debt, WALL ST. J., Oct. 3, 2008, at B3 (announcing the settlement between Capital One and the U.S. Trustee).
236. See Alane A. Becket, Proofs of Claims: A Look at the Forest, AM. BANKR. INST. J., Dec- Jan. 2005, at 10, 53 (describing how the rules governing claims are designed to give parties information and evidence to use in determining whether to object to the claim).
237. See Gardner v. New Jersey, 329 U.S. 565, 573 (1947) (acknowledging the deleterious effects of unmeritorious or excessive claims on participation by legitimate bankruptcy claimants).
238. FED. R. BANKR. P. 3001(c)-(d). The proof-of-claim form also contains the following instructions: You must attach to this proof of claim form copies of documents that show the debtor owes the debt claimed or, if the documents are too lengthy, a summary of those documents. If the documents are not available, you must attach an explanation of why they are not available"; and "[y]ou must... attach copies of the documentation of your lien, and state the amount past due on the claim as of the date the bankruptcy case was filed. Official Bankruptcy Form 10 (2007), supra note 41.
239. FED. R. BANKR. P. 901 1(b)(3).
240. See, e.g., In re Cassell, 254 B.R. 687, 691 (B.A.P. 6th Cir. 2000) ("Proofs of claim must meet the standards of [Rule 9011.]"); In re Berghoff, No. 06-10375, 2006 WL 1716299, at *2 (Bankr. N.D. Ohio June 30, 2006) (finding that a mortgage lender violated Rule 9011 by including in a claim certain fees that were not warranted by existing law).
241. FED. R. BANKR. P. 3001(f).
242. But see In re Prevo, No. 08-30815, 2008 WL 4425799, at *3-4 (Bankr. S.D. Tex. Aug. 7, 2008) (issuing a show-cause order to determine whether the creditor should be required to pay the debtor's attorneys fees for objecting to a mortgage claim that was disallowed for failure of the creditor to meet its evidentiary burden).
243. See, e.g., In re Stoecker, 5 F.3d 1022, 1028 (7th Cir. 1993); In re Heath, 331 B.R. 424, 431-32 (B.A.P. 9th Cir. 2005); In re Gurley, 311 B.R. 910, 915-16 (Bankr. M.D. Fla. 2001) (all holding that the failure to comply with Rule 3001 either can be fixed by amending the claim or is not a valid objection); see also Becket, supra note 242, at 53 (concluding that disallowance on Rule 3001 grounds is not within a court's statutory authority because, under 28 U.S.C. § 2075, the bankruptcy rules are not supposed to "abridge, enlarge, or modify substantive rights").
244. 11 U.S.C. § 502(b) (2006).
245. See, e.g., In re Shaffner, 320 B.R. 870, 879 (Bankr. W.D. Mich. 2005) (permitting a trustee to refuse to administer the proof of claim as filed); see also NANCY H. DREHER & JOAN N. FEENEY, BANKRUPTCY LAW MANUAL § 6:4 (5th ed. 2008) ("There is a split of authority on whether the failure to comply with Rule 3001(c) requires disallowance of the claim."); cf. In re McLaughlin, No. 05-63927, 2007 WL 2571943, at *4 (Bankr. N.D. Ohio Aug. 31, 2007) (disallowing claims filed by a trustee pursuant to Rule 3004 because the trustee did not reasonably investigate the claims or provide documentation to support them).
246. In re Gilbreath, No. 08-32404-H4-13, 2008 WL 4569965, at *76 (Bankr. S.D. Tex. Oct. 14, 2008) (ruling that proofs of claim that failed to comply with Rule 3001 are not prima facie valid, and disallowing such claims when the creditor did not meets its burden of proof to prove the claims).
247. See, e.g., In re Campbell, 336 B.R. 430, 434 (B.A.P. 9th Cir. 2005) (holding that a proof of claim lacking documentation required by Rule 3001(c) is not disallowed unless the debtor's objection to the claim contests the amount of the debt and not merely the violation of the Rule); In re Stewart, No. 07-11113, 2008 WL 2676961, at *9 n.15 (Bankr. E.D. La. Apr. 10, 2008) (shifting the burden of proof onto the creditor because the debtor had objected and presented sufficient evidence to overcome the presumption of the claim's validity).
248. See, e.g., In re Heath, 331 B.R. 424, 437 (B.A.P. 9th Cir. 2005) (stating that a creditor's failure to provide information or to support its claim "in itself may raise an evidentiary basis to object to the unsupported aspects of the claim, or even a basis for evidentiary sanctions, thereby coming within Section 502(b)'s grounds to disallow the claim" (internal citations omitted)).
249. See supra note 154 and accompanying text.
250. II U.S.C. § 704(a)(5) (2006).
251. See supra text accompanying note 152.
252. See, e.g., Statement of the U.S. Tr. Regarding This Court's Order Requiring Countrywide Home Loans, Inc., [and Barrett Burke Wilson Castle Daffin & Frappier, L.L.P. Attorneys and Personnel] to Appear and Show Cause Why [They] Should Not Be Sanctioned for Filing a Motion for Relief From Stay Containing Inaccurate Debt Figures and Inaccurate Allegations Concerning Payments Received from the Debtor, In re Parsley, 384 B.R. 138 (Bankr. S.D. Tex. 2008) (No. 05-90374) (evidencing the United States Trustee's willingness to become involved in litigation). However, the U.S. Trustee may have limited authority to pursue creditors for abusive claims practice because its powers are circumscribed by statute. See supra notes 116-18 and accompanying text.
253. Hearing, supra note 58, at 5 (statement of Steve Bailey, Chief Executive for Loan Administration, Countrywide Financial Organization), available at http://judiciary.senate.gov/pdf/08-05- 06Steve_%20Bailey_Testimony.pdf (testifying that, as a result of variations across jurisdictions in the rules governing bankruptcy, bankruptcy-loan servicing is a borrower-byborrower process that requires manual input of data unique to each borrower, and that this type of processing can occasionally result in mistakes).
254. MODEL PROOF of CLAIM ATTACHMENT, supra note 175, at 2-3.
255. The model attachment would also require the creditor to provide the Mortgage Electronic Registration System (MERS) number for the loan, the real property tax number and parcel number, and a contact person for the servicer (not just the servicer's attorney).
256. Cf. In re Coates, 292 B.R. 894, 899-900 (Bankr. C.D. III. 2003) (noting that the frequent appearance of attorneys fees and expenses in mortgage claims justifies a systematic approach to this aspect of Chapter 13 cases).
257. See I LUNDIN, supra note 47, § 129.1 ("[I]t is not unusual for rehabilitation of a home mortgage to be the principal reason for filing a Chapter 13 case.").
258. See II U.S.C. § 1322(b)(5) (2006) (providing debtors with the right to cure mortgage arrearages within a reasonable time).
259. See Bahchieva et al., supra note 1, at 74 ("Our results also suggest that rising mortgage debt has important consequences for federal bankruptcy policy.").
260. See In re Coates, 292 B.R. at 899 ("A debtor's obligation to cure the prepetition mortgage arrearage is enforceable as a condition of confirmation. A plan that fails to provide for a complete cure is not confirmable over the objection of the mortgagee.").
261. See, e.g., Scott F. Norberg, Consumer Bankruptcy's New Clothes: An Empirical Study of Discharge and Debt Collection in Chapter 13, 7 AM. BANKR. INST. L. REV. 415, 439 (1999) (finding that approximately one-third of Chapter 13 debtors complete their plans).
262. GOV'T ACCOUNTABILITY OFFICE, dOLLAR COSTS ASSOCIATED with the BANKRUPTCY ABUSE PREVENTION and CONSUMER PROTECTION ACT of 2005, at 25, 26 fig.7 (2008) (reporting analysis that showed that the Chapter 13 standard fee had increased after BAPCPA in nearly all judicial districts for which information was collected).
263. See 12 U.S.C. § 2605(e) (2006) (detailing the proper response to a borrower's request).
264. Id. § 2605(f)(3).
265. DOUGLAS j. WHALEY, PROBLEMS and MATERIALS on CONSUMER LAW 481 (3d ed. 2002).
266. 15 U.S.C. §§ 1635, 1640(2006).
267. Id. §§ 1601-1667f.
268. Id. § 1640(a)(3).
269. Foreclosure filings appear to outnumber bankruptcy cases filed by homeowners by a fourto-one ratio. In 2006, there were 597,965 nonbusiness bankruptcy filings. Press Release, Admin. Office of the U.S. Courts, Bankruptcy Filings Plunge in Calendar Year 2006 (Apr. 26, 2007), available at http://www.uscourts.gov/Press_Releases/bankruptcyfilings041607.html. The best available data, which is from the 2001 Consumer Bankruptcy Project, indicate that about 52.5% of all families in bankruptcy are homeowners. Bahchieva et al., supra note 1, at 92. In 2006, there were 1,259,118 foreclosure filings. Press Release, RealtyTrac, More Than 1.2 Million Foreclosure Filings Reported in 2006 (Jan. 25, 2007), available at http://www.realtytrac.com/Content Management/pressrelease.aspx?ChannelID=9&ItemID=1855&accnt=64847; see also Dennis R. Capozza & Thomas A. Thomson, Subprime Transitions: Lingering or Malingering in Default?, 33 J. REAL ESTATE FIN. & ECON. 241,241-58 (2006) (reporting that in a study of borrowers who were identified as ninety-days delinquent on their loans, only 11% had filed for bankruptcy eight months later).
270. See, e.g., In re Foreclosure Cases, 521 F. Supp. 2d 650, 654 (S.D. Ohio 2007) (giving plaintiffs thirty days to submit evidence proving that they had standing to file the complaint); In re Foreclosure Cases, No. 07CV2282, 2007 WL 3232430, at *3 (N.D. Ohio Oct. 31, 2007) (finding that plaintiffs could not show proof of ownership of the note or mortgage).
271. See In re Harris, No. 03-44826, 2008 WL 924939, at *1 (Bankr. S.D. Tex. Jan. 16, 2008) (alleging that default servicers had impermissible and undisclosed arrangements with attorneys to retain a portion of the fees); Complaint at 2, Trevino v. Merscorp, Inc., No. 07-568 (D. Del. Nov. 6, 2007) (alleging that Merscorp overcharged and extracted improper fees from mortgage borrowers).
272. See Eggert, supra note 23, at 286-87 (describing servicers' self-interest as a barrier to loan modification); Larry Cordell et al., The Incentives of Mortgage Servicers: Myths and Realities 3 (Fed. Reserve Bd., Fin. and Econ. Discussion Series, Paper No. 2008-46, 2008) (reporting that available evidence suggests that the inadequate loss-mitigation capacity of mortgage servicers and certain servicing practices are factors contributing to avoidable disclosures).
273. See Prepared Statement of the Federal Trade Commission on Home Mortgage Disclosure Act Data and FTC Lending Enforcement: Hearing Before the H. Comm. on Fin. Servs., 110th Cong. 5-9 (2007) (statement of Lydia B. Parnes, Director of the Bureau of Consumer Protection, Federal Trade Commission), available at http://www.ftc.gov/os/testimony/P064806hdma.pdf (describing the FTC's collection of data on the pricing of subprime mortgages marketed to consumers).
274. See Pennington-Cross & Ho, supra note 59, at 19 (finding that the probability of loan default varied widely by loan servicer, even after controlling for loan-, housing-, and labor-market conditions).
275. See generally Press Release, RealtyTrac, Foreclosure Activity Up Over 55% in First Half of 2007 (July 30, 2007), available at http://www.realtytrac.com/ContentManagement/press release.aspx?ChannelID= 9&ItemID=2932&accnt=64847 (summarizing the results of a mid-year foreclosure-market report showing dramatic increases in foreclosure filings nationwide); Danielle Reed, Rising Foreclosure Rates Point to a Normalizing Home Market, WALL ST. J. ONLINE, Apr. 17, 2006, http://www.realestatejournal.com/buysell/markettrends/20060417-reed.html (discussing rising foreclosure rates and mortgage delinquencies in the United States in the first half of 2006).
276. Jack Guttentag, Borrowers Should Be Able to Fire Mortgage Servicers, http://www.mtgprofessor.com/A%20%20Servicing/borrowers-should-be-able-to-fire- servicers.htm.
277. Id.
278. See U.S. Dep't of Housing and Urban Dev., Complaints, supra note 115 (handling complaints for housing discrimination; landlord-tenant disputes; manufactured-housing issues; land sales; deceptive contractors; and fraud, waste, and abuse).
279. See DIV. OF CONSUMER & BUS. EDUC., supra note 48 (describing what consumers should expect of mortgage servicers and the process for filing complaints against servicers).
280. Globalization's erosion of the attorney-client privilege and what U.S. courts can do to prevent it(Bankr. S.D. Tex. Jan. 16, 2008) (alleging that default servicers had impermissible and undisclosed arrangements with attorneys to retain a portion of the fees); Complaint at 2, Trevino v. Merscorp, Inc., No. 07-568 (D. Del. Nov. 6, 2007) (alleging that Merscorp overcharged and extracted improper fees from mortgage borrowers).
281. See Eggert, supra note 23, at 286-87 (describing servicers' self-interest as a barrier to loan modification); Larry Cordell et al., The Incentives of Mortgage Servicers: Myths and Realities 3 (Fed. Reserve Bd., Fin. and Econ. Discussion Series, Paper No. 2008-46, 2008) (reporting that available evidence suggests that the inadequate loss-mitigation capacity of mortgage servicers and certain servicing practices are factors contributing to avoidable disclosures).
282. See Prepared Statement of the Federal Trade Commission on Home Mortgage Disclosure Act Data and FTC Lending Enforcement: Hearing Before the H. Comm. on Fin. Servs., 110th Cong. 5-9 (2007) (statement of Lydia B. Parnes, Director of the Bureau of Consumer Protection, Federal Trade Commission), available at http://www.ftc.gov/os/testimony/P064806hdma.pdf (describing the FTC's collection of data on the pricing of subprime mortgages marketed to consumers).
283. See Pennington-Cross & Ho, supra note 59, at 19 (finding that the probability of loan default varied widely by loan servicer, even after controlling for loan-, housing-, and labor-market conditions).
284. See generally Press Release, RealtyTrac, Foreclosure Activity Up Over 55% in First Half of 2007 (July 30, 2007), available at http://www.realtytrac.com/ContentManagement/press release.aspx (summarizing the results of a mid-year foreclosure-market report showing dramatic increases in foreclosure filings nationwide); Danielle Reed, Rising Foreclosure Rates Point to a Normalizing Home Market, WALL ST. J. ONLINE, Apr. 17, 2006,http://www.realestatejournal.com/buysell/ markettrends/20060417-reed.html (discussing rising foreclosure rates and mortgage delinquencies in the United States in the first half of 2006).
285. Jack Guttentag, Borrowers Should Be Able to Fire Mortgage Servicers, http://www.mtgprofessor.com/A%20%20Servicing/borrowers-should-be-able-to-fire- servicers.htm.
286. Id.
287. See U.S. Dep't of Housing and Urban Dev., Complaints, supra note 115 (handling complaints for housing discrimination; landlord-tenant disputes; manufactured-housing issues; land sales; deceptive contractors; and fraud, waste, and abuse).
288. See DIV. OF CONSUMER & BUS. EDUC., supra note 48 (describing what consumers should expect of mortgage servicers and the process for filing complaints against servicers).